The online money gaming industry in India is under immense pressure as companies face tax demands that exceed their total revenue. At least two gaming companies have filed interlocutory applications in the Supreme Court, seeking interim relief against the GST department's move to impose a 28% tax on the entire betting pool for past years.
The Goods and Services Tax (GST) department has begun issuing adjudication notices to finalize its claims ahead of the February 5, 2024 deadline. If the notices are not converted into adjudication orders by this date, they will become invalid under GST regulations. However, gaming companies fear that hastily executed tax demands could lead to the collapse of several businesses in the sector.
Industry Fights Back
The main industry lobby is also preparing to approach the apex court, with a draft interim application being circulated among its members for feedback. The court is expected to hear the matter this week, adding urgency to the gaming companies' plea for protection from aggressive tax enforcement.
The legal battle revolves around key issues, including:
- Taxing the Full Deposit: Can GST be imposed on the entire betting amount deposited by gamers?
- Retroactive Taxation: Is it legal to impose GST on transactions prior to October 2023, when the amended GST law became effective?
- Games of Chance vs. Skill: If games like Poker, Rummy, and Fantasy Sports are deemed games of chance, they may fall under the category of gambling, which is illegal in India.
Constitutional Challenge
Gaming companies argue that GST should apply only to the service fees (5-20% of deposits) they earn, not on the entire betting pool. They challenge the constitutional validity of Rule 31A under the GST Act, which forms the basis for taxing the full deposit as part of the supply of goods and services.
Impact on the Industry
The GST amendment in late 2023 brought online gaming under the 28% tax bracket, retroactively covering the period from January 2018 to September 2023. Since October 2023, companies have been paying the revised GST rate, but the retrospective demands have put several firms in financial jeopardy.
While some turf clubs have managed to pay past GST dues under protest, many gaming companies lack the resources to meet these demands, forcing some to shut down.
Awaiting the Final Verdict
The Supreme Court's decision will have far-reaching consequences for the gaming industry. Interim applications filed by the companies aim to prevent the GST department from taking further action until the court delivers its final verdict.
"The demands for additional tax payable far exceed the total revenue earned by these companies, threatening their very existence," said a person familiar with the matter.
As the February 2024 deadline looms, the gaming industry hopes the Supreme Court will offer relief to prevent a crisis that could disrupt the sector.
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